The mining companies Drummond Gold, Alliance Resources and A1 Consolidated have signed a non-binding Heads of Agreement in which the parties will consider an acquisition by Drummond, of Maldon Resources, a wholly owned subsidiary of Alliance and Gaffney Creek Gold Mine, a wholly owned subsidiary of A1. Should the transaction proceed, the merged entity will own the Maldon gold project in Victoria, Australia, (historic primary production 1.75 Moz with average grade of 28 g/t) including an operating CIL gold treatment plant and an advanced underground development project; mineral resources of 272,545 oz gold centred on the Mt Coolon mining district in the Drummond Basin of Queensland; and the A1 gold mine near Gaffneys Creek in Victoria (historic primary production of >385,000 oz, average grade >26 g/t) operated almost continuously from 1861 to 1992.

Under the terms of the agreement the parties will conduct valuation and due diligence on the assets of the respective companies. If agreed, Drummond will issue ordinary shares to A1 and Alliance in relative proportions established by the agreed valuations and undertake an equity raising for development, exploration and working capital. The terms and conditions of any transaction are subject to final agreement.

The merging of these companies will create a larger gold company focused on:

• 100% owned production hub in central Victoria with potential for high-grade underground production from Maldon and A1 in the short to medium term respectively with potential to establish significant mineral resources
• The progression of a future production hub in the Mt Coolon district of the highly prospective Drummond Basin in Queensland with significant potential to increase the mineral resource inventory.

The Maldon gold project is located 30 km southwest of Bendigo in central Victoria. The project comprises an operational CIL gold plant, currently processing purchased and third party ore, a fully maintained decline (1,772 m, 228 m below surface) proximal to the Alliance South gold lode. During 2008 Alliance suspended underground mining operations at Maldon as a result of deteriorating global capital markets and the need to preserve the company’s cash for development of the Four Mile uranium project. Some 50 m of cross cut development is required to access the northern part of the Alliance South lode structure before sill development to the south can occur.